Agrochemicals
A very local market
“In Malaysia, we joke that, if you leave a mango in the backyard, you will discover a fully-grown mango tree months later,” said a smiling Vino Kumar, the CEO of Kuantan Port, one of the largest ports facing the South China Sea.
Thanks to its hot-and-humid tropical climate, with an almost even distribution of rainfall, Southeast Asia is one of the most auspicious regions for agriculture. Indonesia, Vietnam, Thailand, Myanmar, and the Philippines are in the top 10 largest producers of rice globally; Indonesia and Malaysia also host the largest plantations of palm oil; Vietnam is the biggest exporter of coffee beans after Brazil. Exotic fruits and vegetables are grown across the region. Indonesia produces about 3.6 million tons of mangoes every year, second only after India. Other fruits are specific to the region: durian, considered the smelliest fruit in the world, is cultivated in Malaysia, Thailand, and Indonesia, and almost entirely consumed within the region, where it is regarded as the “king of fruits.”
From the rice that is mostly prevalent in Asian diets, to the durian whose acquired taste may be a hard sell for non-locals, most of Southeast Asia’s agricultural products are consumed locally. Although agriculture is one of the main employers for most countries, accounting for more than 25% of total employment in Thailand, Vietnam, Indonesia, and the Philippines according to the Global Economy, the sector has an underwhelming economic contribution, remaining mostly fragmented, relying on small landholders and manual techniques. Agriculture, including land cultivation and animal husbandry, accounted for about 11% of ASEAN’s GDP in 2020, based on data from the World Bank.
Producers of agrochemicals, from fertilizers to crop protection (herbicides, fungicides, and pesticides), soil improvers, and chemicals used in animal husbandry (special feeds, antibiotics, etc.) must serve a hyper-localized industry. In Indonesia, the average land ownership is between two to three hectares (ha), informs Alex Soeriyadi, business development manager at Salim Agrochemical, an Indonesian supplier of crop protection active ingredients and formulations. Similarly, the supplier market of crop protection is also very fragmented in the country, with over 300 industrial suppliers, a very different situation to what is seen in Europe or Australia, where large players like Syngenta or BASF have a dominant market position. In the fertilizer space, major players, among which Yara International and Thai Central Chemical, only account for 22.43% of the market, according to Mordor Intelligence.
“Despite the large population, the crop protection market in Southeast Asia has a comparatively lower dollar-per-capita usage compared to the West, but also other countries in APAC, including Australia, China, and India. Small farmers tend to rely more on mechanical spraying methods, which calls for a different approach, focused on reaching as many farmers as possible with small volumes, unlike in other parts of the world,” said Soeriyadi.
“Japanese, Chinese, and European investors are all exploring Southeast Asia as a spot for agriculture in a bid to create more security in the global food supply chain, in line with new regulations around GMOs.”
Vino Kumar, CEO, Kuantan Port
Ready to optimize production
Various forces are pushing for the modernization of both crop and animal farming. The first is the pressing demand for more food, driven by population growth. With more people moving to the cities, farmers are becoming fewer, and technology must take their place. Those who remain focused on agriculture are empowered by digital technologies to connect and stay informed of the available products that can help them boost productivity. At a basic level, this calls for higher fertilizer usage.
The Southeast Asia fertilizer market is expected to grow from US$17.45 billion in 2023 to US$21.43 billion by 2028, based on a report by Mordor Intelligence. While Malaysia only has one fertilizer plant (owned by Petronas), Indonesia has made serious investments in this space. State-owned company Papuk Kaltim has announced a planned investment of US$1 billion to increase urea fertilizer production. The company is the largest urea fertilizer producer in the region, producing yearly 2.7 million t/y of ammonia, 3.4 million t/y of urea, and 350,000 t/y of NPK.
The ban on imports from Russia, a major fertilizer producer, coupled with large energy bills causing other producers to cut down outputs, drove a spike in fertilizer prices in 2022. The supply shortage was aggravated when China introduced quotas on exports of phosphate, a raw material for commercial fertilizers. This year, the market is volatile, prices having come down significantly, impacted by a new potassium mining project in Laos, which is to add about 2 million t/y of potassium in the NPK markets. The big tenders for the harvest season in India, China and Brazil are also swaying prices. Leslie Leong, executive director at Teknogas, a Malaysian-based trader of ammonia sourced from fertilizer plants like Petronas, watches closely the current dynamics: “For the next six months, ammonia pricing will be a puzzle until the market balances. New factors like Apple’s recent shifting of their manufacturing base from China to India are also tilting demand for high-purity ammonia to India. With more ammonia absorbed by India, prices could again go up. At the same time, Petronas’ huge Johor complex will also bring more supply into the market.”
Besides increasing the usage of fertilizers and other chemicals to help their crops prosper, Southeast Asian farmers are also faced with the challenges of climate change and everything this brings along. Between 2008 and 2018, the Southeast Asian agricultural sector lost about US$21 billion in crop and livestock production due to climate-related disasters, according to a report by the Asian Development Bank. This further exacerbates demand for agro-solutions to strengthen the resistance of crops against draughts, floods, and other climate change-induced phenomena. High salinity levels in the Mekong Delta, the most important agricultural production area in Vietnam, caused severe damage to the farm land on which the livelihoods of thousands of households depend. In recent years, saltwater intruded further inland than ever before, affecting 10 out of the 13 provinces in the Delta, according to a conference paper published by Springer. Behn Meyer, a Southeast Asian producer and distributor of agricare products, is working on solutions for more salt-tolerant seeds and crops: “We are looking at microbes that can tolerate salinity and still make nutrients available to plants to help the region sustain crop farming,” said Dirk Lorenz-Meyer, the chairman of the group.
The agrochemical industry has been introducing to the market not only solutions to deal with the consequences of climate change, but also preventative solutions in the form of innovative bio-alternatives that are kinder to the environment. Agriculture is one of the major emitters of greenhouse gases, contributing up to 29% of GHG according to the World Bank. Indonesian player Salim Agro has introduced to the market the first biostimulant in its portfolio, planning to add more in the future. However, the producer of carbamates active ingredients and herbicide, insecticide, and fungicide formulations remains aware of the realities on the Indonesian market: “We must identify the sweet spot between efficiency and affordability, since biologicals are more expensive than chemically synthesized products and have less consistent efficiency. Ultimately, we need to make sure our products remain accessible to the farmers, while also pushing for more sustainable products,” commented business development manager at Salim Agro, Alex Soeriyadi.
In the animal feed world, the situation is similar: costs remain the main consideration over sustainability. Neosci, a distributor of European-sourced antibiotic replacements like sodium butyrate, met with a skeptical industry when it first started presenting its products to the Thai market back in 2011: “Thai livestock farmers preferred to pay US$3-4 per metric ton (MT) of feed for antibiotic growth promoters instead of 5-US$7 per MT of feed for the natural alternatives. Moreover, it was difficult to break long-standing ties between suppliers and buyers, as well as to credibly prove the positive results we have seen from the studies done for our products in Europe, because the Thai market felt the bacteria strains in Southeast Asia were stronger than those in Europe,” said Charttrawat (Tony) Apinyapanich, the company’s CMO.
Nevertheless, the ASF (African Swine Fever) outbreak in the region has created a drastic shift, pushing many small to medium-sized farmers out of the market, and raising awareness about the importance of pathogen security, since viruses cannot be treated with antibiotics. “The surviving farms are bigger, more professional, and have experienced consultants from universities and large companies. These farms resemble the clean and well-ventilated farms in Europe,” Apinyapanich said.
Trouw Nutrition, which is a subsidiary of Nutreco, one of the top 10 animal feed manufacturers globally, offers a suite of products designed to reduce pollution. For example, its Intellibond hydroxy trace minerals offer the same effect at a lower dosage, helping reduce soil pollution resulting from the minerals excreted by animals. The company encourages its customers to look at the full value chain, from farm practices to feed formulas, offering calibrations for raw materials and performance modelling to enable precision nutrition. Adam Banaszak, general manager at Trouw Nutrition Asia Pacific, recognized that the major theme over the past year has been the cost-value equation: “Most of our conversations with customers were about improving animal performance while reducing costs, but this year, we see a change; while costs remain a main contention point, we also note greater attention paid to sustainability and precision nutrition. Our customers want to leverage all the available solutions to optimize performance, but not yet to maximize performance, which would require higher investment. In the livestock business, the return on investment can take weeks to months, depending on the species, and not all companies are willing to make that investment,” he completed.
Article header image by Quang Nguyen Vinh at Pexels Article separator image by Sorapong Chaipanya at Pexels